How do I become an enrolled agent?

Often considered as America's tax experts, Enrolled agents are federally licensed tax professionals who prepare tax returns, provide tax planning advice, and represent clients before the IRS. Additionally, enrolled agents can represent taxpayers before the IRS at all levels, including examinations, collections, and appeals.

Thus, if a client gets audited, an enrolled agent may represent him or her during the audit process, file an appeal or fight IRS collection actions. The only thing an enrolled agent can't do tax-wise is representing clients in the U.S. Tax Court or other courts: only lawyers can do this.

Are enrolled agents CPAs?

Although often confused with certified public accountants (CPA), enrolled agents differ from CPAs significantly. CPAs may perform a variety of accounting and tax work, but enrolled agents have to prove their knowledge in all areas of taxation. Since they have official authorization by the IRS and Department of Treasury regulations, enrolled agents have unlimited practice rights to represent taxpayers before the IRS.

Are EAs licensed?

A CPA must pass an exam determined by the state board of accountancy in one of the 55 U.S. jurisdictions before getting a license to practice in that state. Whereas, the responsibility of licensing enrolled agents lies with the U.S. Department of the Treasury

To become an enrolled agent, most people take and pass the EA exam, also known as the Special Enrollment Examination (SEE). This three-part exam is a comprehensive test of tax knowledge created by the IRS. Each section tests your knowledge on all tax-related matters.

You can also become an enrolled agent without taking the exam if you work for the IRS for at least five years in a job requiring analysis of the tax laws.

Across the entire nation, there are only about 53,700 enrolled agents according to the NAEA. In contrast, CPAs and tax preparers "who lack the enrolled agent credential greatly" outnumber enrolled agents. Many enrolled agents have their own practices, while others work for tax preparation companies like H&R Block.

How do I prepare for the enrolled agent exam?

The great thing about becoming an enrolled agent is that you don't need to satisfy any special educational or experience requirements. You don't need to be a college graduate or have had any special college major like accounting or business. And you don't need to have worked in the tax field.

All you have to do is pass the Special Enrollment Examination. In addition, you must have filed all necessary tax returns and have no outstanding tax liabilities.

Once you pass and become an enrolled agent, you must complete 72 hours of continuing education every three years.

However, passing the enrolled agent exam is not easy. This is a multiple-choice closed book three-part exam that covers all aspects of taxation. Each part is 3.5 hours long and contains 100 questions. Here are the parts to the exam:

Part 1 – Individuals

1. Preliminary Work with Taxpayer Data: 17 questions
2. Income and Assets: 21 questions
3. Deductions and Credits: 21 questions
4. Taxation and Advice: 14 questions
5. Specialized Returns for Individuals: 12 questions

Part 2 – Businesses

1. Business Entities: 28 questions
2. Business Financial Information: 39 questions
3. Specialized Returns and Taxpayers: 18 questions

Part 3 – Representation, practices and procedures

1. Practices and Procedures: 25 questions
2. Representation before the IRS: 24 questions
3. Specific Types of Representation: 19 questions
4. Completion of the Filing Process: 17 questions

Here's an example of a typical question you'll find on the exam:

Which of the following entities are required to file Form 709, United States Gift Tax Return?

1. An individual
2. An estate or trust
3. A corporation
4. All of the above

By the way, the answer is 1.

The enrolled agent exam is created by the IRS but is administered by a private testing company called Prometric. Each year several hundred locations throughout the United States offer the test.

You can take the three parts in any order at any time. Completing all three parts on the same day isn't a requirement. However, you must pass all three parts within a two-year period. If you fail one part, you can take it again up to three more times. It costs $181.94 to take each part of the exam.